If you’re thinking of investing in property, there’s all sorts of legal and financial consideration.
Are you aware you don’t just have to do so in your name? In fact, it could be better to do so as a limited company.
It’s not just for new landlords to, it’s possible that existing landlords could benefit from changing.
It’s not just a matter of paperwork. It’s about tax efficiency, long-term strategy, and making sure you’re properly protected. We’ve teamed up with the experts at Azets to break it down.
Being an individual landlord
For many first-time landlords, buying in your own name feels like the path of least resistance. It’s straightforward, and you don’t need to worry about company accounts or directors’ duties. But simplicity could come at a cost. Here’s why.
Tax considerations
Income tax on rental profits: You’ll pay income tax at your marginal rate – 20% for basic rate, 40% for higher rate, and 45% for additional rate taxpayers.
Mortgage interest relief: You can’t deduct mortgage interest as an expense anymore. Instead, you get a flat 20% tax credit on the interest paid, even if you’re in the 40% or 45% bracket.
Stamp Duty Land Tax (SDLT): If you already own property, expect an extra 3% surcharge on top of the standard SDLT rates. Non-residents pay an additional 2%.
Insurance considerations
Standard Landlord Cover: You’ll need buildings insurance, and it’s wise to add loss of rent, rent guarantee, and legal expenses cover.
Employers’ Liability: Not required unless you hire staff – but if you’re a sole trader with family helping out, you may qualify for a “family exemption.”
Buying as a limited company
Setting up a limited company to hold property can be a smart move – especially if you’re planning to build a portfolio or hold the property long-term. But it’s not for everyone.
Tax considerations
Corporation Tax: Rental profits are taxed at 19% if your company earns under £50,000, and up to 25% for higher profits. That’s a big saving compared to personal income tax rates.
Full mortgage interest deduction: Unlike personal ownership, companies can deduct mortgage interest in full when calculating taxable profits.
Extracting Profits: When you take money out of the company (e.g. as dividends), you’ll pay personal tax on it. So, it’s best suited for long-term reinvestment.
Loan repayment strategy: If you fund the deposit personally, you can lend it to the company. The company can repay you from profits, and those repayments aren’t taxable income.
Stamp Duty Land Tax: Companies pay the same 3% surcharge as individuals with multiple properties, plus the 2% non-resident surcharge if applicable.
Annual Tax on Enveloped Dwellings (ATED): If you plan to live in the property, company ownership could trigger ATED charges. So steer clear if it’s a future home.
Insurance considerations
Employers’ Liability Insurance: If your company has two or more directors – even if they’re family – you’re legally required to carry at least £5 million in Employers’ Liability cover. Fines for non-compliance can reach £2,500 per day.
Directors & Officers (D&O) Insurance: The “corporate veil” protects you from business debts, but not from personal liability for mismanagement or legal breaches. D&O cover steps in to protect your personal assets.
Landlord Insurance must be in the company name: If you switch from personal to corporate ownership, notify your insurer immediately. Policies in your personal name won’t cover company-owned property.
Multi-property portfolios: If you’re scaling up, look for policies that cover multiple properties under one umbrella. It can mean simpler admin, better rates, and one renewal date, rather than juggling multiple policies.
Protecting your investment
Whether you buy personally or via a company, these options are also worth considering:
- Loss of Rent – Cover for rental income if your property becomes uninhabitable after an insured event (e.g. a storm, fire or flood) for an agreed period of time set out in your policy (usually 12, 24 or 36 months).
- Rent Guarantee – Also known as rent protection, steps in when tenants fail to pay their rent. It reimburses lost rental income and, in many cases, covers the legal costs of pursuing eviction or recovery proceedings after an agreed waiting period.
- Property Owners’ Liability – Covers the company if it’s found legally liable for accidents or injuries on your premises to third party property damage.
- Legal Expenses Cover – Cover for legal defence, contract disputes, repossession, and eviction of squatters.
What’s the best option?
There’s no one-size-fits-all answer. If you’re a basic-rate taxpayer with one property and short-term goals, personal ownership might be fine. But if you’re planning to grow a portfolio, reinvest profits, or you’re in the higher tax brackets, a limited company could save you thousands over time.
Just remember: with greater tax efficiency comes greater responsibility. You’ll need to file company accounts, stay compliant with insurance laws, and think carefully about how you extract profits.
That’s why we’ve teamed up with Azets, to help you navigate the tax maze. And with Howden, we can support with the insurance side too. Together, we’ll help make sure your property investment is protected, profitable, and future-proof.
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- Britain’s car thieves have a new target
- Rental laws are changing – landlords, are you covered?
- What the Bank of England base rate cut means for you
This is a marketing blog by Howden Insurance.